3. Morals and work ethic
“How do we behave when we think
nobody is looking?’’
4.
5. Regulatory Objectives and the
Concept of Regulation
• To protect investors
• Ensure that markets are fair, efficient and
transparent
• To reduce systemic risk
• Protect financial markets from financial crime
• Maintain consumer confidence in the financial
system
6. Factors that Shape the
Regulatory Framework
• Regulatory failure
• Influence from international communities
• Domestic and international political pressure
• The development of complex products
• The evolution of new technologies, such as the
Internet or mobile payments as a delivery channel
for products
7. Advancement Theories
• Products becoming more complex, harder for regulators
to keep up
• Increasing numbers of individuals buying increasingly
more complex products
• Ever expanding number of avenues for illicit and
criminal activity in financial services
• Higher level of global scrutiny of jurisdictions and their
money laundering effectiveness; how effective are fines
as deterrents?
8. The Guardian
January 4th 2013
Otto Bruderer, a managing partner of
the bank, told a New York court:
"Wegelin was aware that this conduct
was wrong… From about 2002 through
to about 2010, Wegelin agreed with
certain US taxpayers to evade the US tax
obligations of these US taxpayer clients,
who filed false tax returns with the IRS.”
10. securitymanagement.com
April 27th 2012
•‘Morgan Stanley maintained significant
internal controls designed to prevent
such corruption’
•The policies were updated regularly
and employees were trained in FCPA
compliance
•Records showed that Morgan Stanley
trained Peterson on the FCPA seven
times during the time frame of the fraud
and reminded him of FCPA rules 35
times
11. Libor – the gift that keeps on giving!
www.bbc.co.uk
February 6th 2013
•Fines in the millions for a wide
variety of financial services firms
•Huge reputational damage
•Individual prosecution cases?
12. The Economist
February 9th 2013
The double edged sword
that is technology!!!
14. A study in human nature
Statistics suggest, when it comes to criminal, or
even moral, choices:-
10% of people will…………….
10% of people will…………….
80% of people will…………….
16. A study in human nature
Statistics suggest, when it comes to criminal, or even
moral, choices:
•10% of people (staff) will never knowingly choose the wrong path
(always follow your compliance programme)
•10% of people (staff) will actively look for the wrong path
(because your programme makes life tougher for them)
•80% of people (staff) will only take the wrong path if they think
they will “get away with it” (when you don’t take any notice of what
they are doing)
17. A study in human nature
“People only Respect what you Inspect”
18. The Guardian
March 20th 2013
How far can public outrage
push the government?
19. The Telegraph
March 21st 2013
•“But Osborne’s attempts to tackle
avoidance are little more than a sham.
The public are outraged that, for big
companies like Starbucks., paying tax
seems to be little more than a matter of
choice
•This government is keen to be seen to
be taking action. Yet in reality their
plans will give a green light to corporate
tax dodgers, ensuring they can shirk
their responsibilities to society.”
•Murray Worthy, War on Want
20. TheStar.com
March 21st 2013
•“Sergei discovered a huge Russian
tax fraud,” said Browder in a
telephone interview. “He found that
$230 million was stolen from the
Russian government. But we knew
there would be no accountability, so
we followed the money ourselves.”
•Magnitsky said he had found a “web
of corruption” spun by Russian tax
officials who allegedly masterminded
the biggest Russian tax heist of the
century.
•With the help of international police
and journalists, he traced $135
million in laundered funds, $31
million of it washed through Cyprus.
21. The Changing Face of Regulations
• Cross border
• Increasing in number, increasing in complexity
• Adapting faster than they ever have
• Greater desire for ‘follow through’ with regards to
illicit activity
• This is not ‘even’ across all nations!
• Easier to find breaches?
• Customers more willing to look for alternatives
• The game of Hide and Seek is much more difficult
these days…
22. Importance of Complicity with
International Frameworks
New FATF money laundering guidance
February 16th 2012
The international Financial Action Task Force has issued substantially revised
guidance on money laundering legislation
www.stepjournal.org
October 12th 2012
Singapore cracks down further on tax evasion
www.hubbis.com
October 18th 2012
Singapore to criminalize tax evasion by
July 1st 2013
www.mountainvision.com
23. All businesses face a multitude of risks
– but the financial services industry
has more than its fair share – and so
risk management is crucial.
25. Strategic options for dealing with risks
Risk reduction ways of reducing likelihood/probability
– improve prevention and control
measures
Risk transfer to another party
Risk sharing link with another
department/organisation
Risk avoidance e.g. by ceasing activities in, or not
entering, a particular area
Risk acceptance & an informed decision to accept
management likelihood/probability
26. Strategic options for dealing with risks
Risk deferment e.g. not entering a new market at this
time, wait and see how it develops and
reconsider
Risk limitation limit scale or scope of
commitment/activities/investment
Risk mitigation put in place a plan that accepts risk but
also deals with damage limitation
27. Key Compliance Framework Issues
• Ultimate responsibility for compliance rests with
senior management
• The compliance function is developed and used
by senior management as a critical tool,
complementing other key risk management
functions such as internal audit
• The compliance function is independent but
sufficiently close to business operations to be
effective
28. Key Compliance Framework Issues
• The compliance function is instrumental in
embedding a strong compliance culture
throughout the organisation
• The compliance function ensures ongoing
compliance with regulatory requirements or at
least is capable of timely remedial action
32. Shaping your firm’s Compliance
culture and its compliance
programme
Every firm has a (general) culture, which drives
• The way power flows
• The way people, especially management, communicate
• The risk appetite
• The way things are done
• The energy (and resource) levels applied
Cultures are pervasive, and exist across the firm
33. Typical contents of a Compliance
Function Terms of Reference
• To develop an appropriate compliance culture
• To provide training
• To provide consultancy to the Business Units
• To implement, monitor and report on standards of
compliance
• To interface between the firm and its regulators
34. www.morecarrot.com
July 19th 2012
It’s official: establishing a culture of compliance in the
workplace – and communicating it clearly – can help you
earn a get out-of-jail card in the courtroom.
35. Conclusion
• There is no ‘one size fits all’ solution
• Firms need to assess what they need, and how
best to achieve this
• What is best for your competitor may not be
best for you
• There is no perfect answer!
36. - END -
My thanks to you all for listening
and, where applicable, staying
awake
In investigating the case, the DOJ found that Morgan Stanley maintained significant internal controls designed to prevent such corruption, including monitoring transactions, conducting random audits, and exercising due diligence with new business partners. The policies were updated regularly and employees were trained in FCPA compliance. Records showed that Morgan Stanley trained Peterson on the FCPA seven times during the time frame of the fraud and reminded him of FCPA rules 35 times.
BHUKAML
This has been expressed mathematically as R = C x E x P where: - C = Consequences / Severity E = Exposure P = Probability
Establishing compliance policies and procedures Monitoring compliance with procedures Monitoring regulatory developments and interpreting regulatory requirements Providing advice Involvement in new products Reporting to management Interface with regulators Taking preventative or corrective measures Developing the function’s role Training and education Promoting the adoption of a compliance culture within the organisation
Establishing compliance policies and procedures Monitoring compliance with procedures Monitoring regulatory developments and interpreting regulatory requirements Providing advice Involvement in new products Reporting to management Interface with regulators Taking preventative or corrective measures Developing the function’s role Training and education Promoting the adoption of a compliance culture within the organisation